Flying the flag in finance
Chief Executive of Scottish Financial Enterprise on the importance of the financial services sector to the Scottish economy and the opportunities for Scottish solicitors
A success story of which Scotland can be proud is the performance of its financial services sector. Despite recent global economic and stock market traumas, the sector in Scotland has grown at five times the rate of the Scottish economy over the last five years and double that of the UK financial services sector overall.
Today one in 10 Scottish jobs are in financial services with over 100,000 directly employed in the sector and nearly 100,000 again in support services for financial companies. Over the past 10 years jobs in financial services in Scotland have grown by 22%, compared with an increase of only 1.5% in Scottish employment as a whole.
In the European league tables Scotland ranks sixth for the share of Europe’s life and pensions market, sixth for equity management, and second only to London in the ranking of the headquarters locations of the 30 largest banks in Europe by market value. Many global financial services companies are headquartered and located in Scotland, bringing substantial spin-off benefits to the local economy.
As Scotland has developed as an international financial services centre, so too has the home-based legal profession required to support the expanding business undertaken by both Scottish financial services companies and the increasing number of international players that have established bases here.
Scottish Financial Enterprise (SFE) is the private body that supports and represents the interests of Scotland’s financial sector. Its members encompass all of the leading groups in financial services including the banks, life and pensions companies, investment managers, investment operations companies, corporate finance and venture capital groups as well as companies that service the sector.
Since it was formed in 1986 SFE has counted leading Scottish law firms among its member companies. Magnus Swanson, chief executive of Maclay Murray & Spens is a member of the SFE board and his remit is to ensure the interests of the legal profession are reflected in the business organisation’s work.
Maclay Murray & Spens directly handles a wide variety of financial services work with remits ranging from demutualisation of Scottish Amicable and Scottish Widows, dealing with a variety of investment trusts, and merger and acquisition activity among fund managers and back office administration companies as well as servicing most of the major banks and venture capital houses operating in Scotland.
Michael Livingston is head of the Maclay Murray & Spens financial services group. “The financial services sector is clearly vital to the health of Scotland’s economy”, he believes. “It is hard to overstate just how different the Scottish economy would look today had it not been for the contribution of financial services. And, of course, that success has significant spin-off benefits for the many others, like us, who service the industry in Scotland.”
The increasingly stringent regulatory environment is a major area that keeps financial companies and their advisers busy. Chris Athanas, partner at Tods Murray WS sees opportunity for the legal profession. His firm has a specialist practice group that focuses mainly on open-ended investment companies, unit trusts and other collective investment schemes, acting for authorised corporate directors and unit trust managers, open-ended investment companies themselves and funds administrators.
“These have been, and remain, challenging times for the financial services sector in the UK, including Scotland”, he comments. “As a practitioner in the asset/fund management companies sector in Scotland, I believe there are challenging opportunities likely to emerge in this practice area. For example, the Financial Services Authority’s current radical proposals for types of authorised collective investment schemes to be available in the UK during 2004 have been described by the Investment Management Association as being, once adopted, ‘the biggest regulatory change to impact the UK collective investment scheme industry since the CIS rules came into being in 1988’.
“From our perspective, the FSA’s current proposals are the biggest challenge and opportunity facing the asset/fund management practice area in Scotland – a chance for it, if it is quick enough off the mark, to steal a march on the rest of the UK.”
Michael Stoneham, senior banking partner at Dundas and Wilson suggests that Scotland’s financial services sector is, in many ways, in charge of its own destiny: “As to the major challenges and opportunities facing the sector, these seem to me to be no different to those affecting the sector in London, Frankfurt or Boston. Scotland as a location has a critical mass in the sector and has advantages and disadvantages. It’s up to us what we make of it, maximising the former and improving the latter as best we can.
“We offer legal services to the financial services sector, and over half of our turnover is derived from working for financial services institutions. This can vary from working for Standard Life on its recent investment office outsourcing to Citigroup, to assisting HBOS on the harmonisation of its employee terms across the enlarged merged UK group, to advising RBS on its new global HQ building – so we have a big interest in the sector remaining active and strong in Scotland.”
Ian Dickson, chairman of MacRoberts, adds: “As key advisers in corporate and banking deals across the UK and beyond, we consider ourselves an integral part of Scotland’s corporate finance community which continues to be highly regarded for its ability to create and deliver innovative solutions for ambitious businesses.
“Those businesses also include the companies and institutions within Scotland’s own financial services industry. Many of these continue to address significant challenges – refocusing their activities, strengthening their capital bases and reinforcing their international competitiveness as the financial markets slowly recover.
“As Scottish lawyers we strive to be their first port of call. But we know that being on their doorstep is not enough. We always have to ensure that the range of expertise we can offer them in meeting these challenges – from corporate, regulatory and banking to property, pensions and employment law – provides the best and most effective support available anywhere.”
In some areas of financial services Scottish solicitors have a distinct advantage over their counterparts south of the border. John Rafferty, chairman of Burness explains: “One of the many financial services roles which can be performed by solicitors in Scotland is the approving of ‘financial promotions’. The Financial Services and Markets Act 2000 introduced the concept of a financial promotion as the successor to what were known under the Financial Services Act 1986 as ‘investment advertisements’. The aim of the financial promotion regime is to protect consumers by ensuring the integrity of any communication to induce a transaction in a broad range of investments such as shares, insurance contracts and funeral plan contracts.
“Any financial promotion must be scrutinised and approved by an authorised person in accordance with detailed rules to ensure that it is clear, fair and not misleading; and that customers are treated fairly. This is a service which most law firms in England and Wales will not provide for their clients, but a small number of Scottish law firms have the necessary expertise.“
Scotland’s fund management sector has an enviable track record that is acknowledged around the world. Several legal firms played a significant role in the establishment of fund management companies in Scotland. David Laing, senior Partner at Ledingham Chalmers says that over the past two years the firm has been retained by several major investment fund managers in Scotland and in the City to provide specialist services and to second experienced lawyers to in-house assignments.
Ledingham Chalmers has also been developing a network of legal and client contacts in other European financial centres with which Scotland already has strong connections. Laing believes the legal profession in Scotland can look forward with optimism to increasing opportunities within the financial services sector: “Scottish solicitors have a long tradition of proactive involvement in the financial services sector. While increasing regulation and the drive for specialisation have led most law firms to restrict their focus to financial advisory services for private clients, a number of firms provide wide-ranging services for institutional clients of all sorts – private equity providers, investment trusts, fund managers, insurance companies and banks.
“Although the City of London clearly has the numerical lead in terms of legal advisers to the sector, it is encouraging that clients with a significant presence on both sides of the border continue to use Scottish expertise where available.”
Scottish Financial Enterprise believes there is no room for complacency about the challenges facing the financial services industry and is pressing government to play its part in supporting companies in Scotland. The Scottish Executive has responded with the formation of the Financial Services Strategy Group, bringing government and industry leaders together, with strong representation from SFE, to focus on the long term and strengthen Scotland’s position.
Scotland’s financial services sector has talent, strength and depth, characterised by the many established, growing and internationally ambitious companies that comprise it. Scottish law firms will continue to play an important role in providing top quality advice to support them, and have much to gain from their successes.
Scottish Financial Enterprise welcomes new members, and firms with an interest in the financial services sector should contact Amanda Harvie, SFE chief executive on 0131 247 7700 or Magnus Swanson at Maclay Murray & Spens.